Slides in this set
·These are the financial targets for the future
covering revenue and expenditure over certain
period of time.
·Budgets are prepared for main areas of the business
purchases, sales, production, labour, debtors,
creditors, cash and provide detailed plans of the
business for the next three, six or twelve months.…read more
Benefits of using budgets in a
· Manage your finances effectively.
· Improve management control of the business- so the managers know who is
spending what and where they spending the money on.
· Allows the owner or the managers to show their responsibilities- so they know
what they should be achieving towards and managers and staff will be working
towards the same target.
· It can help with decision making- they can make decision in how much goods or
services can be achieved and also time, the cost of the output can be decided as
· Use to motivate- motivating managers and other staff to achieve the objectives of
the business. The budget may also be linked to rewards such as; bonuses, where
targets are met or exceeded.
· Identify problems before they occur - such as the need to raise finance or cash
· Employees can gain satisfaction from given a responsibility to meet a budget and
this may lead to exceed in sales budget.…read more
Drawbacks of using budgets in a
· Information may not be accurate. Human or electronic error while producing the
· Set at low level- if the budget is to easy to achieve there is no benefit to the business,
this may lead to lower levels of output and higher costs.
· Budgets should be set at realistic levels, which make the best use of the resources
· Set at high level- if the budget is impossible to achieve, it may demotivate the
employees and the managers.
· Errors and inaccuracies will always remain as it is impossible to predict the future.
· Events around the world such as rising energy prices or the global recession may
result in failure of the whole process.
· Employees may see budgets as either a `carrot' or a `stick', as a form of
encouragement to achieve the targets set, or as a form of punishment if targets
are missed.…read more